TOKYO -- Japan's financial regulator on Friday ordered Citigroup Inc.'s Citibank Japan Ltd. to suspend all sales activities in its retail banking division for one month as a sanction for lax compliance in preventing money laundering.
The suspension will start on July 15, and be applied to advertising and promotion for all products in its retail business, the Financial Services Agency said in a press release Friday. The bank, however, will be allowed to do business with customers who voluntarily contact the bank to purchase its products.
The agency said it has found "fundamental problems" with Citibank Japan's compliance and governance systems for detecting and monitoring suspicious transactions including money laundering. The bank also lacked a sufficient system to control dealings with "anti-social forces," a term used in Japan to describe organized crime groups.
The regulatory action is a blow to Citigroup as the retail banking business is to become the core of its Japanese operations following the sales of its other major business entities currently underway. As part of the global banking group's drive to sell assets to cover its huge mortgage-related losses, Citigroup has already agreed to sell its Japanese brokerage unit, Nikko Cordial Securities, to Sumitomo Mitsui Financial Group, and is in the final stage of negotiations to unload Nikko Asset Management, a mutual fund unit.
In addition to suspending retail operations, Citibank Japan was ordered to review and restructure its system for governance, internal control and business management, and ensure adequate staffing and a proper organizational structure. The bank will submit a business improvement plan to the government by July 31, and report the progress in implementing the plan every three months thereafter.
Citigroup has fallen foul of Japanese regulators before. In 2004 the FSA shuttered its private banking business for violations that ranged from failure to follow guidelines to prevent money laundering to overly aggressive sales tactics.
In a statement, Citibank Japan said it took the latest regulatory action"very seriously" and is "deeply apologetic" for not sufficiently resolving problems, including those raised in the 2004 action. "Citibank Japan is committed to focus all necessary resources to implement every necessary measure to prevent future occurrence," the bank said.
The bank said the latest regulatory action will not affect services for clients in its corporate banking business.
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